FITCH Ratings has affirmed Slovakia’s long-term foreign and local currency issuer default ratings (IDR) at A+ with stable outlooks. The issue ratings on Slovakia’s senior unsecured foreign and local currency bonds have also been affirmed at A+, while the country ceiling has been affirmed at AAA and the short-term foreign currency IDR at F1, the Reuters newswire reported on February 28.
The affirmation and stable outlook reflect mostly the fact that Slovakia’s economic growth (estimated at 2.4 percent in 2014) is expected to continue outperforming the eurozone average (projected to grow at 0.9 percent in 2014). Slovakia, however, still suffers from structurally high unemployment at 14 percent, Reuters wrote.
Fitch judges the macro-prudential framework to be sound. A solid banking sector and low level of private sector indebtedness remain key strengths for Slovakia’s ratings. The banking sector has a high average capital adequacy ratio (17.2 percent) and a strong domestic funding base, which supports a manageable loan-to-deposit ratio of 82 percent.
Slovakia’s current account is projected by Fitch to remain in surplus in 2014 and 2015, largely helped by an improving trade surplus, which will continue to be supported by country’s low unit labour costs relative to European peers and the more positive eurozone outlook.
Sustained current account surpluses would help reduce Slovakia’s net external debt, which is worse than the net external creditor positions of both the A and AA medians, Reuters wrote.
Slovakia has undertaken significant fiscal consolidation since 2009. The headline fiscal deficit came in below the Maastricht threshold of 3 percent of GDP in 2013, while the structural deficit estimated by the European Commission contracted to 2.3 percent from 7.3 percent in 2010. Fitch forecasts a general government deficit at 2.8 percent in 2014, which is slightly up than an estimated 2.6 percent in 2013, as reported by Reuters.
Slovakia will face a challenging task to meet its medium-term fiscal target of 1.5 percent of GDP by 2016, while a tendency to rely on one-off rather than structural measures raises some questions about the durability of fiscal consolidation. Nonetheless, Fitch estimated general government debt to end up in 2013 at around 55 percent of GDP, broadly in line with the A median and below Slovakia’s self-imposed constitutional debt threshold of 57 percent of GDP.
Membership in the eurozone continues to benefit Slovakia’s economic development, by promoting a robust institutional framework, expanding its export sectors and supporting prospects for inward investment, Reuters wrote.
Compiled by Radka Minarechová from press reports
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28. Feb 2014 at 13:00